Bad Brokers

According to FINRA, Amy M. Greenberg was assessed a deferred fine of $5,000 and suspended for five months in all capacities for willfully failing to timely amend her Form U4 to disclose an unsatisfied federal tax lien for $56,937.77.

The Internal Revenue Service mailed notice of the tax lien to G...

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According to FINRA, Amy M. Greenberg was assessed a deferred fine of $5,000 and suspended for five months in all capacities for willfully failing to timely amend her Form U4 to disclose an unsatisfied federal tax lien for $56,937.77.

The Internal Revenue Service mailed notice of the tax lien to Greenberg's residential address. Although she was required to disclose the tax lien via filing an amended Form U4 within 30 days of receiving notice, she failed to amend her Form U4 until almost four years later.

Form U4 disclosure requirements serve critical investor protection purposes. Financial difficulties, including significant unsatisfied tax liens, can create pressures that may lead registered persons to engage in misconduct such as borrowing from customers, conversion, or recommending unsuitable high-commission products to generate income. Firms need to know about such financial issues to assess fitness and implement appropriate supervision.

Investors and firms rely on the accuracy and completeness of Form U4 disclosures when evaluating registered persons. A federal tax lien exceeding $56,000 is material information that should have been disclosed promptly. The nearly four-year delay in disclosure deprived Greenberg's firm and the public of important information about her financial condition.

The finding that Greenberg's failure was willful means she intentionally failed to disclose the lien, not that she intended to violate securities rules. The willful nature of the non-disclosure makes it particularly serious.

The five-month suspension holds Greenberg accountable for willfully failing to timely disclose a substantial federal tax lien for nearly four years, depriving her firm and regulators of material information about her financial condition.

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According to FINRA, Old Slip Capital Management, Inc. was censured and fined $15,000 for failing to maintain accurate records of aggregate indebtedness and net capital.

The firm signed a loan agreement with the Small Business Administration for a $500,000 Economic Injury Disaster Loan (EIDL) but ...

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According to FINRA, Old Slip Capital Management, Inc. was censured and fined $15,000 for failing to maintain accurate records of aggregate indebtedness and net capital.

The firm signed a loan agreement with the Small Business Administration for a $500,000 Economic Injury Disaster Loan (EIDL) but failed to include the loan value when calculating its aggregate indebtedness. This caused the firm to prepare and maintain inaccurate aggregate indebtedness and net capital computations. As a result, the firm filed FOCUS reports that inaccurately stated its aggregate indebtedness, minimum required net capital, and net capital deficiency.

The firm also filed notices with the SEC and FINRA stating that it failed to maintain its minimum required net capital but did not conduct securities business during the deficiency period. However, these notices inaccurately stated the firm's minimum required net capital and understated the firm's net capital deficiency.

Additionally, the firm failed to timely respond to FINRA's requests for information and documents during its investigation. The firm did not provide any documents in response to several items, including emails concerning the EIDL receipt and communications with the SBA. The firm only provided a complete response after FINRA issued a Notice of Suspension.

This case demonstrates the critical importance of accurate recordkeeping in the securities industry. Firms must properly account for all liabilities, including loans from government programs, when calculating net capital requirements. Investors should verify that their brokers are properly capitalized and maintain compliance with regulatory requirements, as net capital deficiencies can indicate financial distress that may affect the firm's ability to serve customers.

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According to FINRA, LPL Financial LLC was censured and fined $150,000 for failing to investigate red flags related to a registered representative's undisclosed outside business activities and failing to reasonably supervise fund transfers.

The firm failed to reasonably supervise transfers of fund...

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According to FINRA, LPL Financial LLC was censured and fined $150,000 for failing to investigate red flags related to a registered representative's undisclosed outside business activities and failing to reasonably supervise fund transfers.

The firm failed to reasonably supervise transfers of funds by a representative's customers to third parties, including a purported investment advisory firm. In total, the representative caused five firm customers to transfer over $650,000 to the purported investment advisory firm or to accounts at a third-party custodian for which the purported investment advisory firm was the advisor. After the transfers, the funds were converted by a third party.

Because the firm failed to identify red flags that the representative was conducting outside business activities on behalf of the purported investment advisory firm, it did not take reasonable steps to investigate the representative's transfer of customer funds to the firm. Two customers independently recovered their funds, and the firm provided restitution to three customers.

This case highlights the importance of proper supervision of fund transfers and the detection of undisclosed outside business activities. When a registered representative directs customers to transfer substantial funds to third-party entities, especially entities with which the representative may have an undisclosed relationship, firms must conduct adequate due diligence.

Investors should be cautious when directed to transfer funds outside their brokerage accounts, particularly to unfamiliar third-party investment advisors. Always verify the legitimacy of any investment opportunity and understand why funds need to be transferred away from your established brokerage account. If a broker pressures you to move money to an outside firm without clear documentation and transparency, this should be considered a red flag.

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According to FINRA, Instinet, LLC was censured and fined $165,000 for publishing inaccurate monthly reports of order executions.

The firm excluded from its Rule 605 of Regulation National Market System reports potentially reportable orders submitted to its alternative trading system by certain bu...

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According to FINRA, Instinet, LLC was censured and fined $165,000 for publishing inaccurate monthly reports of order executions.

The firm excluded from its Rule 605 of Regulation National Market System reports potentially reportable orders submitted to its alternative trading system by certain business units and systems. The firm had erroneously determined that all orders received through these particular business units and systems were subject to special handling and excluded from the definition of a covered order. As a result, the firm underreported by approximately five percent its total covered orders. After FINRA identified this issue during a firm exam, the firm began evaluating each order individually to determine whether it should be included in the firm's Rule 605 report.

Additionally, due to logic errors in the Rule 605 report-generating software used by the firm, the firm inaccurately classified midpoint peg immediate-or-cancel orders by order type. The firm classified such orders as marketable limit orders rather than inside-the-quote limit orders. The software logic error was subsequently corrected. In total, the firm published 54 inaccurate monthly Rule 605 reports.

The firm's supervisory system, including its Written Supervisory Procedures, was not reasonably designed to achieve compliance with Rule 605 of Regulation NMS. The firm had no procedure to review or test that it was correctly excluding orders or to check that orders included in its reports were properly classified by order type.

This case demonstrates the importance of accurate reporting in market transparency. Rule 605 reports provide investors with critical information about how broker-dealers execute orders. Investors rely on these reports to make informed decisions about order routing. Firms must implement proper controls and testing procedures to ensure the accuracy of their regulatory reports.

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According to FINRA, Edward D. Jones & Co., L.P. was censured, fined $1,100,000, and required to establish and implement policies and procedures to address the issues identified.

The firm failed to timely, completely, and accurately produce certain phone records in response to FINRA's requests for...

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According to FINRA, Edward D. Jones & Co., L.P. was censured, fined $1,100,000, and required to establish and implement policies and procedures to address the issues identified.

The firm failed to timely, completely, and accurately produce certain phone records in response to FINRA's requests for documents in connection with investigations into allegations of potential misconduct, including unauthorized trading, discretionary trading, and excessive trading. In its responses to these requests, the firm failed to search a storage location containing call detail records older than 18 months, which housed responsive documents. Additionally, in most investigations, the firm inaccurately represented in its responses or in a legend attached to its productions that records older than 18 months were not available.

Members of the firm's group responsible for responding to regulatory requests learned of the storage location and realized that the firm should be searching that location when responding to certain requests for call detail records. They understood that some of the firm's past responses to requests from regulators were likely incomplete. Despite this awareness, the firm failed to promptly advise FINRA of its production failures, doing so only eight months after learning of the issue, and only after FINRA raised questions about an incomplete production in another matter. The firm also failed to identify all affected investigations until more than a year after discovery and failed to contact most affected parties until more than two years after discovery.

Furthermore, the firm failed to preserve certain responsive call detail records from an internal network drive during the pendency of regulatory requests. The firm did not take action to prevent responsive records from being deleted pursuant to the firm's purge protocol, resulting in missing call detail records ranging from several days to several weeks.

This case underscores the critical importance of document preservation and complete cooperation with regulatory investigations. Investors should be aware that incomplete or delayed production of records can hinder investigations into potential misconduct, potentially allowing problematic behavior to continue undetected.

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According to FINRA, OFG Financial Services, Inc. was censured, fined $45,000, and required to remediate the issues identified and implement a reasonable supervisory system for reviewing electronic communications.

The firm failed to establish, maintain, and enforce a reasonable supervisory system,...

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According to FINRA, OFG Financial Services, Inc. was censured, fined $45,000, and required to remediate the issues identified and implement a reasonable supervisory system for reviewing electronic communications.

The firm failed to establish, maintain, and enforce a reasonable supervisory system, including Written Supervisory Procedures, to review electronic communications that its registered representatives sent and received. The firm's WSPs did not identify the personnel responsible for searching or reviewing emails, state how frequently reviews should occur, or provide any information about the sample size for email review. Additionally, the WSPs did not specify any keywords or process for identifying keywords to flag emails for review or describe any parameters for conducting random sampling. The procedures also did not describe any types of red flags or issues that would require follow-up steps from reviewers or any steps for escalating issues identified during email review.

The firm's email review was also unreasonable in practice. The keywords the firm used to flag emails for review included the firm's own name, which appeared in virtually all its emails. Furthermore, the firm only reviewed a small fraction of the emails contained in the random sampling identified for review. As a result, the firm reviewed only 0.26 percent of the emails that its representatives sent or received.

This case illustrates the inadequacy of minimal email supervision in the securities industry. Electronic communications are a primary method through which representatives interact with customers and conduct business. Without adequate review procedures, firms cannot detect potential misconduct, unsuitable recommendations, or misrepresentations made to customers via email.

Investors should understand that proper email supervision is an important safeguard. If you have concerns about communications with your broker, document all interactions and save copies of emails. Lack of proper supervision increases the risk that problematic conduct may go undetected.

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According to FINRA, Citigroup Global Markets Inc. was censured, fined $1,500,000, and required to certify that it has remediated the issues and implemented a reasonable supervisory system for compliance with Rule 200(f) of Regulation SHO.

The firm improperly included securities positions of non-b...

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According to FINRA, Citigroup Global Markets Inc. was censured, fined $1,500,000, and required to certify that it has remediated the issues and implemented a reasonable supervisory system for compliance with Rule 200(f) of Regulation SHO.

The firm improperly included securities positions of non-broker-dealer affiliates in two of its aggregation units when calculating the net positions of the AGUs. Rather than separately calculating the net position of the firm accounts within the AGU and the net position of each affiliate, as required by Regulation SHO, the firm marked all sell orders based upon the net position of all accounts in the AGU. As a result, the firm did not accurately calculate the net positions of, or assess long and short sales by, two of its AGUs.

Additionally, the firm failed to take reasonable steps to timely act upon known Rule 200(f) deficiencies. The firm did not begin the process of removing its non-broker-dealer affiliates from the AGUs until six years after becoming aware that the inclusion of non-broker-dealer affiliates was not permissible under Rule 200(f).

Regulation SHO was designed to prevent abusive short selling and ensure proper location of securities before executing short sales. The rule's aggregation unit provisions allow affiliated entities to net positions for purposes of determining whether a sale is long or short, but only under specific conditions. By improperly including non-broker-dealer affiliates in its AGUs, Citigroup potentially mismarked orders and undermined the regulatory framework designed to prevent naked short selling.

This case demonstrates that even large, sophisticated firms can have compliance failures, particularly when they fail to promptly address known deficiencies. The six-year delay in correcting the issue after becoming aware of it is particularly concerning. Investors should be aware that proper compliance with short sale regulations protects market integrity and helps prevent manipulative trading practices.

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According to FINRA, Coastal Equities, Inc. was censured, fined $150,000, and ordered to pay $268,800, plus interest, in partial restitution to customers.

The firm negligently failed to tell customers it solicited to invest in offerings related to an alternative asset management firm that the issu...

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According to FINRA, Coastal Equities, Inc. was censured, fined $150,000, and ordered to pay $268,800, plus interest, in partial restitution to customers.

The firm negligently failed to tell customers it solicited to invest in offerings related to an alternative asset management firm that the issuers failed to timely make required filings with the SEC, including filing audited financial statements. The firm sold limited partnership interests in private sector companies after being notified that the delivery of the issuers' audited financial statements would be delayed pending the completion of a forensic audit. The principal value of those sales totaled $3.05 million, and the firm received a total of $244,000 in commissions from the sales. In connection with these sales, the firm's representatives did not inform the customers that the issuers had not timely filed their audited financial statements with the SEC or the reasons for the delay. The delay in filing audited financial statements was material information that should have been disclosed.

The firm also failed to reasonably supervise a registered representative who recommended that his customers purchase offerings related to the alternative asset management firm. These customers purchased approximately $15 million of the alternative asset management firm's offerings. During the firm's review of the representative's transactions, the firm failed to recognize multiple red flags that the representative was circumventing the firm's concentration limits by inflating customers' financial information on disclosure forms. The firm did not verify changes to customers' financial information or seek substantiating documentation, despite many customers having purported liquid net worth increases around the time of purchases. This resulted in several customers having unsuitably high concentrations of their liquid net worth in alternative investments.

Subsequently, the SEC filed a complaint against the alternative asset management firm alleging securities fraud, and the U.S. Department of Justice brought criminal charges against the firm's founder and CEO and two other executives.

This case illustrates the critical importance of disclosing material information about investments. Delays in filing audited financial statements, particularly when a forensic audit is being conducted, are significant red flags that investors need to know about to make informed decisions. Investors should always ask questions about the current status of required regulatory filings and be cautious about investments in private placements, especially when concentration limits seem to be circumvented.

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According to FINRA, Wells Fargo Securities, LLC was censured and fined $200,000 for overstating its advertised trade volume on two third-party private subscription-based providers of market data.

The firm configured its systems to automatically advertise daily trading volume in numerous securitie...

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According to FINRA, Wells Fargo Securities, LLC was censured and fined $200,000 for overstating its advertised trade volume on two third-party private subscription-based providers of market data.

The firm configured its systems to automatically advertise daily trading volume in numerous securities through the two third-party service providers. However, two distinct technological misconfigurations within the firm's systems caused it to overstate its executed trade volume. First, an error in the firm's trade advertising software caused the firm to erroneously advertise certain options trades as equity transactions, which caused the firm to overstate its trading volume in equity transactions on both third-party service providers. Second, a misconfiguration of the order management system used by one of the firm's trading desks caused certain trades routed between that desk and the firm's electronic trading desk to be advertised on one third-party service provider twice, causing the firm to overstate its trading volume. The firm stopped the overstatements caused by each misconfiguration within a week of learning about the issues. In total, the firm published 54 inaccurate monthly reports.

Additionally, the firm failed to establish and maintain a supervisory system, including Written Supervisory Procedures, reasonably designed to achieve compliance with FINRA Rule 5210. The firm conducted daily reviews of its manually advertised trade volume and monthly reviews of a sample of its auto-advertised trade volume. However, the firm had no defined criteria for selecting the monthly sample or determining how many securities or what proportion of the firm's advertised trade volume should be included. The firm's review process was not reasonably designed to identify overstatements of trading volume on one of the third-party service providers. Furthermore, the firm failed to perform any testing of option trades or multi-leg trades to ensure that non-equity components were properly excluded from advertisement.

This case demonstrates that even automated systems require proper supervision and testing. Trade volume advertising affects how market participants perceive liquidity and can influence trading decisions. Investors and market participants rely on accurate trade volume data to assess market conditions and make informed trading decisions. Firms must implement adequate controls and testing procedures to ensure the accuracy of their advertised trading volume.

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According to FINRA, Justly Markets LLC (formerly DBOT ATS, LLC) was censured and fined $100,000 for failing to preserve memoranda of more than 95 million orders received from broker-dealer customers.

Initially, the firm failed to preserve memoranda for all orders received. Subsequently, the firm ...

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According to FINRA, Justly Markets LLC (formerly DBOT ATS, LLC) was censured and fined $100,000 for failing to preserve memoranda of more than 95 million orders received from broker-dealer customers.

Initially, the firm failed to preserve memoranda for all orders received. Subsequently, the firm used a third-party vendor to preserve order memoranda, but when the firm changed third-party vendors, the original vendor deleted the firm's order memoranda. The firm had not otherwise preserved the records. The firm ultimately closed its alternative trading system and has since reorganized as a private placement agent.

Additionally, the firm failed to establish a supervisory system, including Written Supervisory Procedures, reasonably designed to achieve compliance with recordkeeping requirements. The firm had no policies or procedures and did not conduct any supervisory reviews to ensure that it made and kept current, reviewed the accuracy of, or preserved order memoranda.

Order memoranda are critical regulatory records that document the details of securities orders, including the time of receipt, the terms of the order, and how it was handled. These records are essential for regulatory examinations, investigations into trading irregularities, market manipulation, and customer disputes. The failure to preserve more than 95 million order memoranda represents a massive gap in the regulatory record.

This case highlights the importance of proper recordkeeping and the risks of over-reliance on third-party vendors without adequate backup procedures. When firms change vendors, they must ensure that critical records are properly transferred and preserved. The complete loss of records for such a large volume of orders significantly hampers regulatory oversight and the ability to investigate potential misconduct.

For investors, this case underscores the importance of maintaining personal records of all trades and communications with brokers. While firms are required to keep detailed records, failures like this demonstrate that investors should not solely rely on their broker to maintain documentation. Keep confirmation statements, account statements, and records of all transactions in your own files.

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